Top Menu

Actionable Intelligence On The Risk Of Bribery Internationally

Today’s post is from Alexandra Wrage (President of TRACE International).


Compliance officers and in-house counsel for multi-national companies are well aware of the risks and consequences of bribery schemes. What to do about it is the challenging part. Companies have long relied on Transparency International’s authoritative country-by country corruption risk ratings to prioritize their limited resources. But knowing what specific steps are necessary to mitigate your risks is not something that can be gleaned from an overall country risk rating.  Because two countries with the same overall risk rating can present very different types of corruption risk, the ratings alone don’t provide actionable intelligence. A compliance officer needs to know how corruption in a particular country will confront their business. Last week, another tool in the compliance and risk assessment arsenal was launched to meet this need: the TRACE Matrix.

We at TRACE have long heard the laments from compliance officers and general counsel that they need the actionable information that would come from more granular country risk ratings.  One general counsel noted after looking at other indices, “once you get past the first 30 – 40 countries, all those lower countries start to look the same. If you are comparing Angola to Romania, the ranking isn’t useful, but if you are able to give guidance as to what types of corruption you might see, that would be extremely helpful.”

Enforcement officials have also recognized the limitations of country level risk ratings. “Multinational companies need additional tools beyond those currently available to more effectively measure country risk.”  Charles Duross, Partner at Morrison & Foerster LLP and the former deputy chief in the fraud section in the criminal division of the U.S. Department of Justice.

And so, working in collaboration with RAND Corporation, TRACE set out to develop an actionable business bribery index for the compliance community.  This project involved more than a year of research and benchmarking.  We asked companies what features they would like to see in a business bribery index and asked them to identify information that would assist their assessment of business bribery risk.   As part of our research, we also conducted interviews with regulators and enforcement officials to understand their views of country risk assessments.

The resulting TRACE Matrix provides not only a country level risk-rating but also four different domain risk ratings and nine different sub-domains of risk.  Although the TRACE Matrix can be used to rank countries by their composite scores, it is also possible to view the results for specific risk factors included in the composite score to identify what drives the overall score. This allows firms to identify not only where a country falls in terms of overall business bribery risk, but also to use the domain and subdomain scores to tailor compliance practices further.   For example, if the business is one that has to have many interactions across many government offices, then a country with a high risk in this domain would be of particular concern.

In the 1990s, Transparency International gave the world the Corruption Perception Index (CPI). TI gets great credit for raising awareness of this issue and putting countries on notice that levels of corruption were being monitored.  The CPI is a valuable instrument for addressing overall levels of perceived corruption in a particular country.  It combines numerous surveys about perceived levels of corruption across government functions:  judiciary, health, education, etc. These country level ratings are informative, but they also obscure important and actionable differences among countries with similar ratings. The business community’s needs are more specific.

The World Bank’s Worldwide Governance Indicators also aggregates corruption-related data, but as the Governance and Social Development Resource Centre states, “the main use of the indicators by international organization [sic] and donors is to incentivize developing nations to improve their governance and to improve the allocation of aid.”   Another valuable tool, this alone does not meet the needs of the business community.

Companies that use existing indices to measure threats associated with business corruption risk developing either overly aggressive or inadequate compliance and due diligence procedures. They need more nuanced data to tailor their compliance processes appropriately.

So, after hearing from the business community for years that a tailored tool to gauge levels of commercial bribery was needed we set out to explore just what should be measured.   Most respondents cited “touches” with the government as the most important indicator for commercial bribery.   In a great assessment of ports in Nigeria, the Maritime Anti-Corruption Network (MACN) determined that 142 signatures were needed to clear cargo in the port of Lagos.  That’s a powerful indicator of the likelihood of a bribe demand.

At the same time, as one participant noted, the compliance community needs “something that is more targeted, more precise than the CPI, [but] the more complicated it gets, the less likely people will be to use it.”

And so, leveraging our own experience and tapping our stakeholders all over the world, we identified four domains relevant to companies

(1)   business interactions with government,

(2)   anti-bribery laws and enforcement,

(3)   government transparency and civil service, and

(4)   capacity for civil society oversight.

RAND further refined this by including nine sub-domains. For example, when it came to business interactions with government, the Matrix addresses the nature of contact with local governments, expectations of paying bribes and regulatory burdens. Likewise, in examining capacity for civil society oversight, the Matrix addresses the quality and freedom of media, as well as human capital and social development.

Ultimately, by offering a clear, actionable snapshot of the risk of commercial bribery in a country, the TRACE Matrix should help multinational companies make better decisions about foreign investments, bolster compliance and reduce the likelihood of violating anti-bribery laws.  No approach is perfect and we expect a lot of debate about the weighting of the data and about scores or rankings that people find surprising. But we hope it will provide a practical and effective tool to help assess bribery risk and thereby enable in-house counsel and compliance professionals to allocate their limited resources with more confidence.

Alexandra Wrage is the president of TRACE International, a nonprofit antibribery compliance organization offering practical tools and services to multinational companies, including the TRACE Matrix. 

Powered by WordPress. Designed by WooThemes